MIDAS SHARE TIPS: Shipping magnate Braemar

About 90 per cent of international trade is carried by sea, with thousands of ships transporting goods across the globe, ranging from oil and wheat to cuddly toys.

London is at the centre of this trade. Shipping magnates come from far and wide to arrange deals, secure finance and seek advice in the capital.

Braemar is one of the companies those businesses turn to. A global leader in the shipbroking field, Braemar has a decades-long heritage and a reputation for top quality service.

All aboard: Tankers en route to deliver oil are now serving a vital role in holding supplies ahead of a surge in demand

The company said last month that trading had held up well since the Covid-19 pandemic erupted. Nonetheless, the shares have been savaged, tumbling from £2.24 in early January to just 99p when the market closed last week.

The fall seems unjustified. Shipping is the lifeblood of the global economy and, even if the coronavirus induces a worldwide slowdown, essential goods still have to be transported from A to B.

Virtually every shipment requires a broker, who acts as an intermediary between the cargo’s owners and shipping companies, and is paid a commission for their work.

Trust is paramount in this industry. Ships can be worth more than £100million each, their cargo may be highly valuable and transporting goods around the world is a risky business, so everyone involved needs to feel confident that they are in good hands.

Shipowners need to know they will be paid for their work in a timely manner, while cargo owners need to know that their goods will be handled with due care and attention, and will arrive on time.

Braemar is known for going the extra mile in this regard. The group has built a network of relationships across the globe, and many of its customers have been with the business for years.

Braemar’s core business focuses on commodities such as wheat, soya, oil and steel, which play a critical role in our everyday lives.

Happily for Braemar, there is no direct link between the underlying commodity prices and orders for shipments. Indeed, when the price of crude oil tumbled last month, Braemar did well, as cargo owners scrambled to find tankers that could store their surplus fuel.

The group makes three quarters of its money from shipbroking, but provides a range of related services too.

When shipowners are looking for finance, Braemar can help them find investors. This division was formed in the teeth of the 2008 financial crisis and tends to do well when times are hard and banks reluctant to lend.

The company has also built a huge research database. This can provide cargo owners and shipowners with valuable guidance. But it can also track when ships may be coming to the end of their useful life.

Braemar can then step in and offer advice on shipbuilding, ship financing and chartering, often finding owners long-term cargo contracts once their new vessels are seaworthy.

Braemar is chaired by Ron Series, who has decades of experience in international trade and logistics. Appointed just over a year ago, he has already helped the company to dispose of non-core divisions and become more focused.

At last month’s trading update, Series disappointed some investors by saying there would be no final dividend for the year to February 29. However, this was attributed more to prudence than underlying concerns about the business.

Looking ahead, Series is confident of Braemar’s prospects and stockbrokers are too.

Turnover of £123million is forecast for the year to February 29, 2020, with profit of £9million. Those figures may dip slightly in the current year, but results should recover next year.

Series is also committed to restoring dividends as soon as is practicable. At least 5p is expected for the year to February 28, 2021, putting the stock on a yield of 5 per cent, rising to 7.5p the following year.

Midas verdict: Shipping is a cyclical business but the long-term outlook is benign, particularly as Asian economies pick up steam. With offices around the world, a global reputation and a robust management team, Braemar is well placed to benefit from underlying industry trends. At 99p, the shares are undervalued. Buy.

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